Level 3 - Contract Practice Flashcards
1
Q
- What is a contract?
A
A legally binding agreement (between two parties) to provide goods and services within a specified timeframe.
2
Q
- What is necessary to form a contract?
A
Offer Acceptance (or counter offer) Consideration Intention (to be legally bound) Capacity (to make agreement) (e.g. power of attorney on behalf of a company)
3
Q
- How is a contract executed?
A
- Under hand, signed by both parties, 6 year limitation period. Means that a party must bring about any claim for breach of contract within 6 years of the breach taking place. Any later and the claim will be time-barred.
- Under Seal (as a deed), signed and witnessed, 12 year limitation period. Valuable consideration not required,
4
Q
- What are common contract documents?
A
- The Contract (with any amendments)
- Preliminaries
- Contract sum analysis/Pricing Schedule
- Employers Requirements including : drawings, specification, planning conditions/agreements
- Contractors Proposals
5
Q
- What are the main contract suites?
A
- JCT (Joint Contract Tribunal)
- NEC (New engineering contract)
- FIDIC (International federation of Consulting engineers)
- ICE (Institution of Civil Engineers)
6
Q
- How did you try to mitigate a delay on one of your projects?
A
25 OS
7
Q
N 1. Why use standard forms of contract?
A
- They are cheaper than getting a bespoke contract drawn up
- Offer a level of familiarity between the parties
- Tried and tested contracts in court, therefore you should be able to predict the outcome in the courts.
8
Q
N 2. Why wouldnt you use a bespoke contract?
A
- They are costly to produce and time consuming
- Contractors do not like them, as they regularly put alot of the risk onto the contractor
- They are not tried and tested like a standard form
9
Q
N 2. What are the main headlines in a JCT Contract?
A
- Recitals
- Articles
- Contract Particulars
- Attestations
- Conditions
- Schedules
10
Q
N 3. What is in the contract?
A
- Main Contract and its schedule of amendments
- ER’s: preliminaries, drawings, specifications, surveys, existing site information
- Contract sum analysis
- Contractors Proposals
11
Q
N 4. What should you consider when selecting the contract?
A
- The criteria of the client
- The procurement method you are going to use
- Nature of the works
- Timings, are the works required to start quickly or do you have time to produce robust set of docs
12
Q
N 7. What standard forms of contract do you know that are offered by JCT?
A
- SBC 2011/2016
- Intermediate building contract 2011/2016
- Minor works Building contract 2011/2016
- Major Projects building contract 2011/2016
- Design and build contract 2011/2016
- Management Building contract 2011/2016
- Construction management contract 2011/2016
- Prime cost building contract 2011/2016
13
Q
N 8. Can you name some NEC standard contract forms?
A
NEC - Engineering and Construction Contract (ECC)
- Option A, Priced contract w/ Activity Schedule
- Option B, Priced contract w/ BoQ
- Option C, Target contract w/ Activity Schedule
- Option D, Target contract w/ BoQ
- Option E, Cost reimbursable
- Option F, Management contract
14
Q
N 12. When is a JCT Minor Works contract NOT suitable?
A
- Complex projects
- Detailed control procedures
- Where there are named Sub-Contractors
15
Q
N 13. Can you provide more information on the JCT Major project construction contract?
A
- Used on large , complex project by experienced clients
- They place most of the risk on the contractor
- Has sub-contract derivatives
- All derivatives/versions have a yellow and purple cover
16
Q
N 14. Can you provide more information on the JCT Design and Build Contract 2011?
A
- They are used by all types of clients, create a single point of responsibility for the design and construction with the contract:
- Can be used on projects of all sizes
- Client must produce the Employers Requirements
- Has a sub-contract derivative broken into two parts: JCT DB11 Sub-contract Agreement, JCT DB11 Sub-contract Conditions
- All derivatives have a Yellow and pink cover
17
Q
N 15. Can you provide more information on the JCT Management Building Contract?
A
- Used then a management contracting route is chosen
- Used by experienced clients who understand the construction costs
- No real cost certainty until all packages are let
- Works are completed by a number of ‘Works Contractors’ who are placed under a management works contract.
- Works Contractors are contracted to the Management Contractor
- Management Contractor is a fee earning professional onto the the final construction costs.
- All derivatives have a yellow and brown cover
18
Q
N 16. Can you provide more information on the JCT Construction management contract?
A
- Used where a CM procurement route is chosen
- Used by experienced clients who understand the construction costs
- No real cost certainty until all packages are let
- Works are completed by a number of ‘Trade Contractors’, who are placed under a ‘Construction Management Trade Contract’.
- Trade contractors are contracted directly with the client
- The Construction Manager is only responsible for looking after the programme and construction.
- All derivatives have a Yellow and Brown cover.
19
Q
N 17. Can you provide more information on the JCT Prime Cost Building Contract?
A
- Used on projects which require an early/quick start
- Usually on a cost plus basis, as the extent of the works are not known until the project is underway
- Has sub-contract forms
- All derivatives have a yellow and pink cover
20
Q
What are the different variations of a standard building contract. ?
A
- With quantities – where design is complete and where there is a bill of quantities
- Without quantities
- Approx. quantities
21
Q
What are the principles of Contra preferentum?
A
It is where ambiguous clauses are construed against the party who didn’t put the contract forward, the courts are more likely to side with the party of the contractor as they client put the contract forward with that ambiguous clause.
22
Q
What are the key differences between NEC and JCT?
A
- Nec contract suites: 6 main options and secondary options where as JCT is separate contracts
- NEC is written in layman terms
- NEC tries a more collaborative approach to work in mutual trust and understanding
- Programme is a contract document in the NEC
- NEC allows 25% of monies to be withheld if the contractor does not submit an acceptable programme
- Under JCT there are Variations In NEC this is called a compensation event, a compensation event includes loss and expense and extension of time
- Within NEC you have periods of reply
23
Q
What is the EA’s role under the JCT?
A
- Issue instructions
- Certify Payment
- Issue Extensions of time
- Consider all Variations, Loss and expense claims, interim applications
- Assess when Practical completion has been achieved
24
Q
What are the key notices under a JCT Contract?
A
- Payment notice
- Practical Completion Statement
- Sectional Completion Statement
- Instruction
- Pay Less Notice
- Delay Notice
- Extension of Time Notice
- Notice of Completion of Making Good
25
What were the contract amendments made for SP?
- Discrepancies within ERs – client selects preferred option (not treated as a change)
- Payment terms – payment in 28 days, not 14
26
N 24. When was NEC3 published?
2005
Used by both the ICE and Government
27
N 25. What are the perceived problems with NEC3 Contracts?
- Very admin heavy
- Requires alot of expertise to operate effectively
- Focuses too much on Project Management
- Cost information in relation to compensation events can take a long time. PM regularly has to decide how to proceed based on a cost estimate from the QS, which then gets replaced by the actual costs.
28
N 26. What are the specialities with NEC?
- No Contract Administrator required, replaced by a Project Manager
- Compensation Events as opposed to variations, extensions of time, loss and expense etc.
29
N 27. What is a compensation event under the NEC?
Events that occur during the course of the works that cause the completion date to be changed, or additional cost to the contractor as a result to the client
30
N 28. What might a Compensation Event include?
- Variations
- Instructions to changes contracted services
- Failure to provide access
- Late issue of information from client
- Failure by client to supply materials
- Instruction to halt/delay works
- Conditions that can't have been reasonably foreseen
- Exceptionally adverse weather
- Acts of god.
31
N 29. What is the process for a compensation event under NEC?
1. Contractor must notify the project manager within 8 weeks of the event becoming apparent with an EARLY WARNING NOTICE, if not notified in this period then it will not be considered.
2. PM has 1 week to review claim and respond
3. Contractor has 3 weeks to provide quotation
4. PM has 2 weeks to respond to quotation
5. Final costs of works calculated on a cost reimbursable basis
32
N 30. What is the Project Managers role under NEC contracts?
- Manage programme
- Operate early warning mechanism
- Issue instructions
- Issue outcomes for compensation events
- Determine when practical completion has been achieved
- Assess defects
33
N 31. What is the Contract Administrators/Employers Agent role under JCT?
- Issue instructions
- Certify payment
- Issue Extensions of time
- Consider all Variations, Loss and expense claims, interim applications
- Assess when practical completion has been achieved.
34
N 32. Who is the Employers Agent?
Typically used in Design and Build contracts, they are there to ensure the clients best interests are met.
35
N 33. What is the Main Contractor responsible for?
The construction of the project, through either direct labour or sub-contracted labour
Health and safety, if they are the principle contractor then CDM regs apply;
- Construction phase plan
- Prepare, develop and implement written site plans
- Provide welfare facilities
- Ensure all workers have site inductions
- Provide all relevant information required for H&S plan to the Principle Designer
36
N 34. What is Novation?
Where the contractual benefits and burdens of a contract are passed from one party to another.
Commonly used in Design and Build for Design Team
37
N 35. Is the contractor responsible for the Novated party's design prior to Novation?
No, unless they state they have adopted the design.
38
N 36. What is Assignment?
Where the contractual benefits and burdens of a contract are passed from one party to another. Such as the assignment of a collateral warranty from one tenant/operator to another.
39
N 37. When can Assignment take place
Any time, as it is a statutory right, however it can be limited within a contract
40
N 38. Give an example of how Assignment can be restricted?
Restricting the assignment of a collateral warranty to one time only, without the written consent of the warranter.
41
N 39. What is the aim of Assignment?
They give the assignee the same rights as the assignor under the contract
42
N 40. What is a Collateral warranty and why use it?
A way of forming a direct contractual link between two parties which otherwise wouldn't have a link, such as between a sub-contractor and a client.
A collateral warranty is a contract between a person with an interest in the project (the beneficiary) and a person who was involved in the project’s design, management or construction.
The consultant and/or building contractor usually warrants to the beneficiary that it has complied with the terms of its professional appointment or building contract.
If the beneficiary has collateral warranties then it may be able to recover its losses in the event of any defects. The buyer must show that the relevant consultant, contractor or sub-contractor:
breached the terms of the collateral warranty; and
this breach caused the beneficiary to suffer loss.
43
N 41. What case law do you know that relates to Collateral Warranties?
Parkwood Leisure v Laing O'Rourke
44
N 42. What happened in the case of 'Parkwood Leisure v Laing O'Rourke'?
It was found that Collateral Warranties can be considered to be a construction contract, and are therefore subject to the same provisions as the construction act
45
N 43. What Collateral Warranties do you know of?
- Collateral warranty for a Purchaser/Tenant
- Collateral warranty for an Employer
- Collateral warranty for a funder
46
N 44. What are third party rights?
- An alternative to Collateral Warranties
- They allow a third party to be written into a contract
Introduced as part of the Contracts (third party rights) act 1999.
- Third party rights allow a third party to enforce a term or terms of a professional appointment, building contract or sub-contract, that otherwise the third party could not enforce.
47
N 45. What is the aim of Third Party Rights?
To give the Third party the benefits of the contract only, not the burdens. I.e Writing in the tenant as a the third party will ensure that they receive the contract benefits
48
N 46. What is a Letter of Intent?
- A document outlining an agreement between two parties, before a formal contract has been created
- Each letter of intent is different, with each being assessed based on it meaning
49
N 47. What can a Letter of intent be based on ?
- An expression of the intention to enter into a contract at a future date, which doesn't give rise to any legal obligation.
- An expression of the intention to enter into a contract at a future date, which does not exclude the right to recover costs on a quantum merit basis.
- The creation of a interim contract
- The creation of a legally binding contract, whereby the letter can be offered and accepted.
50
N 48. What can be included within a letter of intent?
- Spending caps
| - Expiry dates
51
N 49. What is a title retention clause?
Where the good and services remain the property of the seller until a certain obligation is undertaken, i.e. payment.
52
N 50. What is a Performance Bond?
A form of financial Security, used to cover the client against the contractor failing to fulfil their contractual obligations.
53
N 51. What are the typical values of a Performance bond?
Typically work approximately 10% of the Contract Value to the client
54
N 52. What are the problems with bonds?
They will come at the clients cost.
55
N 53. What are the two types of bond?
- Default bond
| - On demand bond
56
N 54. What is the difference between a Default Bond and an On demand bond?
- A default bond can be called in when the contractor defaults on their contractual obligations however the client will have to prove that the contractor has defaulted.
- An on demand bond can be called in at any time, without having to satisfy any of the pre-conditions.
57
N 55. What types of Bonds do you know of?
- Advanced payment bonds
- Retention bonds
- Materials off site bond
- Tender Bond
58
N 56. What is an Advanced Payment Bond?
A financial surety to the client that if an advanced payment is made, then the bond will pay out if the contractor defaults.
59
N 57. Why would you use an Advanced payment bond?
If a contract had high upfront costs, and the contractor wanted advanced payment to ease the upfront cost.
60
N 58. What is a Retention Bond?
A Bond taken out instead of taking retention from interim valuations, improving contractor cash flow.
61
N 59. Why would you use a Retention Bond?
If a Contractor had poor cashflow, a retention bond means that no retention is taken from interim payments, improving cashflow.
62
N 60. What happens with variations to a Contract in relation to a retention bond?
The bond value will need to be updated to suit, or the additional retention can be deducted as usual from interim payments.
63
N 61. What if a Contractor doesn't maintain a Retention bond? (or other bond)
Then the client is entitled to take the retention out the next interim application.
64
N 62. What is a Parent Company Guarantee?
A parent company guarantee is an alternative form of surety for the client, whereby a parent company to the subsidiary company will warrant the subsidiary's companies work, and will remedy any breaches by the subsidiary company, by either stepping in to complete the works, paying damages etc.
65
N 63. What is Professional Indemnity Insurance?
A form of insurance that covers professional negligence
66
N 64. What is Employers Liability Insurance?
A form of insurance that covers the injury and death arising from business activities
67
N 65. What is Contractors All Risk Insurance?
A form of insurance that covers for subsequent loss or damage
68
N 66. What types of payment method are there?
- Stage Payments
- Milestone payments
- Payment based off activity schedule
- Third party certification
69
N 67. What are Stage Payments?
Whereby a predetermined amount is paid on a pre-determined date. They are time accurate but not necessarily value accurate.
70
N 68. What are Milestone Payments?
Whereby a value is paid when a certain Milestone is reached, i.e. completion of the footings. They are fairly time and value accurate.
71
N 69. What are Payments based on an Activity Schedule?
- Payments are made against activities that have been completed at pre-determined times.
- They are reasonably value and time accurate.
72
N 70. What is Third Party Certification?
- Traditional form of valuing the works complete to a certain date.
- Low form of predictability, but high accuracy of the value of works complete.
73
N 71. What is the real name for the construction act?
The housing Grants, Construction and Regeneration Act 1996
74
N 72. What is the name of the Act which amended the Construction Act?
The Local Democracy Economic Development Act 2009
75
N 73. What provisions did the Construction Act introduce?
- No paid when paid clauses
- The statutory right to adjudication
- The right to interim payments on contracts over 45 day duration
- The right to suspend performance
- The right to be informed of the amount due, and any amounts withheld.
76
N 74. What are the payment provisions under the construction act?
7 days from application date = due date
5 days after the due date = contractor can issue a default notice
17 days from due date = final date for payment
7 days prior to final date for payment = the last day a payless notice can be issued
Overall payment terms of 24 calendar days
77
N 75. What is a payless notice?
A notice which is issued stating how much less you intend to pay than the contractors application
78
N 76. Does a contractor have to issue a Default notice if they issue interim valuations?
No, the interim valuation becomes the default notice
79
N 77. What happens if the final date for payment is missed and no payment made?
Then the contractor is entitled to issue a 7 day notice of their intention to withdraw from site unless payment is received in full
80
N 78. What is a 7-day notice?
- A contractual notice which advises a party of another parties intention to withdraw from site until payment is made
- A notice for terminating a contract if a certain remedy of breach is not met.
81
N 79. What are the payment provisions under NEC?
- 21 day payment terms
- Payless notice to be issued 7 days prior to final date for payment
- Project manager must assess and certify the amount due within one week of the application.
82
N 80. What are the payment provisions under JCT?
- 21 day payment terms
| - Payless notice upto 5 days prior to final date for payment
83
N 81. What should be included within interim valuations?
- Measured works
- Dayworks
- Variations
- Fluctuations
- Loss and Expense
- Preliminaries
- Materials on/off site
- Provisional sums
- Prime cost sums
84
N 82. How can you secure payment for materials off site?
By providing a materials off site bond
85
N 83. What should you do when paying for materials off site?
Ensure a vesting certificate is issued for the materials, confirming your ownership
86
N 84. What should you do when paying for materials on site?
Get the materials clearly separated and marked as being under the client's ownership
87
N 85. What are fluctuations?
A was of dealing with inflation over long period contracts. They allow for the contractor to be reimbursed for the inflation of specific items within the contract.
88
N 86. What are the three main types of Fluctuation Clauses?
- Changes to taxation
- Change in the cost of labour, transport and materials
- Change to office or administrative costs
89
N 87. How can fluctuation clauses be calculated?
- Calculated in real times, i.e. actual cost increases
| - Or using a pricing index
90
N 88. What are the three types of fluctuations considered under JCT ?
a. Changes to statutory contributions, levies and taxes
b. Changes to labour, materials and statutory costs
c. Changes to statutory contributions, levies and taxes calculated by formula.
91
N 89. How do JCT Fluctuations clauses work with retention?
A and B do not have retention held, C does.
92
N 90. What is excluded from retention?
- Dayworks
| - Loss and Expense
93
N 91. What is retention?
A percentage of the amount certified for payment, retained by the client as a financial incentive for the contractor to complete the works, and also return to rectify and defects which may appear.
94
N 92. What value is normally taken for Retention?
3 or 5%
95
N 93. When does retention get released?
Typically half at PC and half once the Rectification period and completion of making good certificate has been issued.
96
N 94. What can a contractor request to protect their retention money?
That it is held in a separate bank account, which they have regular access to regular updated statements.
97
N 95. What items do not have retention taken on them?
- Loss and expense
- Fluctuations
- Opening up and testing fees
- Statutory charges
98
N 96. What is the definition of 'change'?
An alteration to:
- The Scope of works
- The design
- The quantity
- The quality
- The working conditions
- The sequence of works
or
The imposition of additional obligations on the contractor by the client.
99
N 97. What change cannot be undertaken without the contractors consent?
- Omission of work
- Changes to the fundamental nature of the work
- Work that is instructed after Practical Completion
100
N 98. Who instructs changes under JCT?
Contract administrator / Employers Agent
101
N 99. Who instructs change under NEC?
The project manager
102
N 100. How should change be valued under
| JCT?
1. Use the Method of Measurement used at tender.
2. Firstly using bill rates/rates from the activity schedule.
3. Pro-rata rates.
4. Rates from first principles.
5. Dayworks.
103
N 101. How should change be valued under NEC?
1. Called a Compensation Event.
2. An approximate price should be provided to the Project Manager, which they can base their decision on.
3. The final price is calculated on a Cost Reimbursable basis, based off the actual cost for the Change.
104
N 102. What is the reason for a Compensation event under NEC?
• To put the contractor back in the same position both financially and programme wise, prior to the variation occurring.
105
N 103. What is an Extension of Time?
• An adjustment to the completion date, relieving the contractors liability to pay LADS for the period of additional time granted.
106
N 104. What is the process for submitting and granting an Extension of time?
* When the delay becomes reasonably apparent, the contractor gives written notice to the client identifying the delay.
* The client has 12 weeks to review and respond.
107
N 105. What is a relevant event?
An event that entitles a contractor to an extension of time
108
N 106. What can be considered as a relevant event?
* Variations.
* Exceptionally adverse weather.
* Delays in receiving possession.
* Force Majure.
* Terrorism/ civil commotion.
* Failure by the client to issue materials.
* Delays caused by a nominated sub-contractor.
* Changes to statutory requirements.
* Failure by the client to provide information.
109
N 107. Do Extensions of Time benefit the client?
Yes, as they set a new contractual completion date the contractor must adhere to, otherwise they will have liquidated damages levied against the contractor
110
N 108. What is a concurrent delay?
Where delays caused by both the contractor, client and unforeseeable events cause a delay.
111
N 109. How do you assess concurrent delay?
Each delay should be assessed on its merits, to determine the root cause of the delay
112
N 110. What is a relevant matter?
A delay caused by the client, entitling the contractor to an extension of time and loss and expense.
113
N 111. How is a relevant event different to a relevant matter?
* A Relevant event is any delay caused by the client or a neutral event.
* A Relevant matter is a delay typically caused by the client, which entitles the contractor the a claim for loss and expense.
114
N 112. What is loss and expense?
• Usually associated with Extensions of Time/Relevant Matters, whereby the contractor is entitled to claim additional costs as the result of a delay.
115
N 113. What are the Loss and Expense heads of claim?
* Preliminaries
* Overheads
* Loss of Profit.
* Interest
* Finance Charges
116
N 114. When do most disputes in construction contracts occur?
• When there are discrepancies between tender and contract drawings or the information is poor, creating too much ambiguity.
117
N 115. What types of dispute resolution are there?
* Negotiation
* Mediation
* Conciliation
* Adjudication
* Arbitration
* Litigation
* Expert Witness.
118
N 116. How does Mediation work?
• An independent third party is appointed, with the intention of facilitating talks between he disputing parties, in aid of them reaching an amicable resolution without going legal.
119
N 117. How does conciliation work?
• Same as mediation, however the conciliator will propose a settlement agreement at the end of proceedings.
120
N 118. How does adjudication work?
* Notice of intention to adjudicate is served from one party to another.
* Adjudicator must be appointed within 7 days of notice.
* Decision is made with 28 days (can be extended to 42)
* Confidential.
* Statutory right.
121
N 119. How does arbitration work?
* Third party arbitrator is appointed to decide on a dispute.
* Parties will attend a hearing, where the arbitrator will listen to both sides and make their decision on a dispute.
* Confidential.
122
N 120. What is Litigation?
• The process of taking legal action, i.e. construction disputes will be taken to the Construction and Technology courts for settlement.
123
N 121. What is expert determination?
Where a third party expert in a field is appointed to make a decision on a specific dispute.
124
N 122. What is the Civil Procedure Rules 1998?
• They introduced the Alternative Dispute Methods of Resolution, Mediation, Conciliation, Adjudication and Arbitration to try speed up the legal process, along with making it cheaper and easier to understand.
125
N 123. What is a named sub-contractor?
• A Sub-contractor recommended by the client, which doesn’t have to be used by the contractor and also doesn’t impose any form of repercussions to the client if the contractor uses the named sub-contractor.
126
N 124. What are the benefits of naming a sub-contractor?
• It allows the client to influence the contractors decision, whilst taking no responsibility for the performance or cost of the named sub-contractor.
127
N 125. What is nominating a sub-contractor?
• It allows the client to choose a particular sub-contractor, and impose them in the main contractor.
128
N 126. What are the issues of nominating a sub-contractor for a client?
• It will leave them responsible for the nominated sub-contractors performance and price.
129
N 127. How do nominated sub-contractors work financially with regards to the main contractor?
• They are on a prime cost sum, whereby the final value of the nominated contractors work is added to the contract sum, usually with an uplift for Overheads and profit for the main contractor.
130
N 128. What is Sectional Completion?
• A similar method to Practical Completion, it is used on large project where the works can be broken down into sections, allowing the client to take possession of individual sections once they are complete.
131
N 129. What is practical completion?
• Practical Completion is awarded when the works are considered to be ‘substantially complete’.
132
N 130. What happens when Practical Completion is awarded?
* Half Retention is released.
* Defects liability period commences.
* Client is responsible for insuring the site.
* Ends the Contractors liability to pay liquidated damages.
133
N 131. What is Partial Possession?
• Similar to Sectional Completion, however it is used when the client wants to take possession of a particular part of the site early. It is granted at the contractor’s discretion.
134
N 132. What happens when Partial Possession is awarded?
* Alleviates the contractor’s liability to pay LAD’s for that section partially taken over. Lads should decrease proportionally.
* Half Retention is released proportionally.
* End of defects period for that section commences.
* Client is responsible for insuring that part of the site.
135
N 133. When can partial possession it be used?
* Sectional Completion must be written into the contract.
| * Each section will come with it own Sectional Completion date, retention and liquidated and ascertained damages.
136
N 135. What happens if Practical/Section Completion/Partial Possession is granted?
* Client becomes responsible for insuring the works.
* Half retention released.
* Alleviates contractors liability for LADS.
* Contractors Defect liability period commences.
It may include the submission of :
- ‘as built’ drawings, all the
- information for the preparation of the health and safety file concerning the maintenance and operation of the works,
- operation and maintenance manuals, software and associated licences, training of staff,
- collateral warranties, product guarantees, etc. to be executed,
all as a pre-condition to practical completion taking place and the practical completion statement being issued.
137
N 136. Does the contractor have to accept partial possession?
• No, but they cannot reasonably refuse.
138
N 137. What is the alternative to partial possession?
• Use or occupy, whereby the client uses the area even though its still in the contractor possession.
139
N 138. What is a contractors design portion?
* Whereby the Contractor is required to design a portion of the works, as part of their contract.
* What is to be designed by the contractor should be made clear within the tender documents.
140
N 139. What is determination?
• Where both parties mutually agree to walk away from a contract.
141
N 140. What is a final account?
• The final value of the works completed, inclusive of all adjustments to the contract sum.
142
N 141. How is the final account shown?
• In the final certificate.
143
N 142. What is included within the final account?
* Contract Sum.
* Variations.
* Provisional Sums.
* Prime Cost Sums.
* Retention.
* Loss and Expense.
* Contra Charges.
* Liquidated Damages.
* Payments to Nominated Sub-contractors.
* Fluctuations.
144
N 143. What is completion?
* When all works are completed, and the defects rectification period has ended and all defects have been made good.
* The Certificate of Making good should be issued.
145
N 144. What needs to happen if PC/SC is not achieved and the Client wants to levy liquidated damages?
• Certificate of Non-completion needs to be issued as a pre-requisite.
146
N 145. When does the defects rectification period begin?
• When PC/SC is achieved, and usually last 6 – 12 months.
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N 146. What happens if defects are found?
* The EA, will instruct the contractor to remedy the defects.
* At the end of the Defects rectification period, a schedule of defects will be issued to the contractor for remedy.
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N 147. What are Liquidated Damages?
* An amount that can be levied by the client against the contractor if they fail to meet the contract practical/sectional completion dates.
* They must be a genuine pre-estimate of the contractors loss and are usually fixed daily/monthly sums.
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N 148. What happens if liquidated damages are construed as a penalty?
• They will be unenforceable in court.
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N 149. What are Un-liquidated damages?
• Based on the actual loss of the employer, who will have to either negotiate with the contractor the value or refer the matter to legal proceedings.
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N 150. What is a Contra-Charge?
• A contra-charge is effectively a back charge, a way of off-setting payment for an item, i.e. for the supply of materials from the contract to a sub-contractor.
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N 151. When is the final certificate issued?
• It is issued at the end of the defects liability period, with it releasing the remaining half of the retention, along with ending the contractors liability for defects.
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N 152. What is acceleration?
• Whereby the completion dated is brought forward, requiring the works to be completed quicker.
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N 153. What are the methods of accelerating?
* Supplying the site with additional resources.
* Re-sequencing the works.
* Working Longer Hours.
* Reduction in scope by the client.
* Change of Specification.
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N 154. What are the issues with Acceleration?
* Constructive Acceleration can cause problems.
| * Most methods will usually come at additional cost to the Client.
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N 155. When is Acceleration Simple?
• When the Delay is client led, and the client issues a formal instruction to accelerate.
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N 156. What is Constructive Acceleration?
* Arises where the contractor believes they have a valid claim from an Extension of Time, but the Client disagrees.
* The contractor will accelerate without instruction to mitigate their risk of Liquidated damages, and try recover costs from the Client.
* Uninstructed Acceleration is not accepted by the courts however.
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N 157. CASE LAW QUESTION: DO YOU KNOW OF ANY CASE LAW RELATING TO THE OMISSION OF WORK?
* Yes, Abbey Developments Limited V PP Brickwork.
* The case is essentially about whether Abbey Developments was able to omit the remainder of PP Brickwork’s Work.
* Abbey Developments were unsatisfied with PP Brickworks progress.
* They issued and instruction the omit the remaining works from their contract, and employ a new sub-contractor.
* Abbey found to be in breach by the adjudicator, as the clauses in the contract did not allow for such an omission.
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N 158. CASE LAW QUESTION: DO YOU KNOW OF ANY CASE LAW RELATING TO A CONSTRUCTION CONTRACT?
* Yes, Parkwood Leisure v Laing O’rourke.
* The case was about determining whether a Collateral Warranty is considered a Construction Contract under the Housing Grants, Construction and Regeneration Act 1996.
* Due to wording of the Collateral Warranty, it was considered to be a Construction Contract, allowing Parkwood Leisure to Adjudicate.
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N 159. What is Subject to Contract?
• Creates a legal meaning that the parties do not wish to enter into contract until a form contract is signed.
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N 160. What is Without Prejudice?
• When using this term, it means that the document etc. cannot be used in court as evidence.
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N 161. CASE LAW QUESTION: DO YOU KNOW OF ANY CASE LAW RELATING TO A LETTER OF INTENT?
* Yes, Volkerfitzpatrick v Twintec Ltd.
* Volkerfitxpatrick instructed twintec to proceed with the concrete slab on a LOI, including the clause: in accordance with the DOM/2 sub-contract.
* Volker adjudicated against twintec for poor works.
* Twintec refered the matter to court, to get an injunction on the adjudication because it was invalid.
* Court ruled that because the Letter of Intent didn’t reference the dispute resolution method, that it was actually invalid and granted the injunction.
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N 162. What are the DOM 2 suite of contracts?
• A suite of sub-contracts published by the RICS
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P 1. What are Relevant Events? (and give and example)
• An event which causes a delay to the completion date. Relevant Event entitles Contractor to claim an Extension of Time that is, for the completion date to be moved.
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Examples include;
o Variations
o Adverse Weather
o Terrorism
o Delay by nominated sub-contractor
o Force Majeure
o Loss from a specified Peril (such as flood)
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P 2. What are Relevant Matters? (and give an example)
• Something that the client is responsible for that materially affects the progress of the works. A relevant matter enables the contractor to claim direct loss and expense incurred. A RM may not always result in an Extension of Time (i.e. a change to the completion date)
• Example might include;
o Failure to give the contractor possession of the site
o Opening up works that have been carried out in accordance with the contract
o Failure by client to supply goods or services
o Instructions relating to variations and expenditure of provisional sums
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P 3. What is the difference between a Relevant Event and a Relevant Matter?
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167
What is a contract sum analysis used for?
* assessment of tenders
* calculating payments and
* pricing changes to the employer’s requirements (the contract requires that the pricing of changes is consistent with the contract sum analysis)
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What must the EA do at practical completion?
- The employer’s agent must inspect all of the works in order to issue the practical completion statement.
The employer’s agent is unable to sign the notice unless only minimal defects remain, which would not prevent the employer from safely and effectively using the building. This is also true of health and safety/operation and maintenance manuals, these too should be complete lacking only the final copies of test certificates which may have been carried out on the day of handover.
Once the employer’s agent has inspected the works, verified any documents required in order that the project can be operated by the employer safely and in the manner for which it has been intended. The employer’s agent is satisfied that the contractor has completed the works in accordance with his or her obligations; the employer’s agent may sign and issue the practical completion statement.
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What kind of insurances are there in the JC D&B contract and what is the EA's role with regards to insurance?
Briefly, the JCT Design and Build Contract provides for the following insurances to be provided by the parties: • Employer's liability: employers, in this case the contractor, have a statutory obligation to provide insurance cover for their employees in the event of death, injury or damage caused during the course of their employment.
• Public liability: this is to cover the insured, again in this case the contractor, against any death, injury or damage claims from members of the public, other than their own employees.
• Insurance of the contract works: this covers loss or damage to the work itself and any unfixed materials on-site, and may be provided by the contractor or the employer, dependent on the option chosen (option A, B or C) under the contract.
• Professional indemnity (PI) insurance: the contractor may be required to take out professional indemnity (PI) insurance on an amount not less than that stated in the contract particulars.
The role of the employer’s agent is to:
- check, when assessing the tenders and recommending the appointment of the contractor, that the contractor is able to provide the required policies, certificates and premium receipts for inspection by the employer and his or her insurance advisors.
- The relevant insurances to be provided by the contractor are in place in terms of coverage, indemnity limits and timescales in accordance with the contract.
- The employer’s agent must also check that, for example, collateral warranties and product guarantees are properly executed as required. These may be a pre-condition to a practical completion statement being issued at the end of the project.
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What are the benefits of using a collateral warranty over third party rights?
- The construction industry is familiar with collateral warranties;
- The Third Party Rights Act 1999 does not allow a third party to be put under an obligation to do something (a burden). The Third Party Rights Act 1999 allows a third party to enforce the benefit of a contract term (or contract terms) only.
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What are the common features of a collateral warranty?
- Require the warrantor to comply with the professional appointment or building contract it entered into with the developer.
- Confirm that the beneficiary may appoint others to inspect the project,
- Grant a copyright licence (or wider intellectual property licence) in favour of the beneficiary, allowing it to copy documents and designs for use in connection with the project;
- Oblige the warrantor to maintain professional indemnity insurance (often for 12 years from practical completion), provided that the warrantor has a design or management obligation;
- Limit the beneficiary’s right to assign the benefit of the collateral warranty;
The professional appointment or building contract.
Any collateral warranty should be drafted consistently with the professional appointment or building contract to which it relates.
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What are the key limitations of Collateral warranties?
A collateral warranty usually includes a “no greater duty” and/or an “equivalent rights of defence” clause:
- A no greater duty clause says that the consultant or contractor cannot owe the beneficiary greater duties under the collateral warranty than it would owe the employer under the professional appointment or building contract.
- An equivalent rights of defence clause says that the warrantor may use any defence under the professional appointment or building contract (which it would have against the employer) to defend a claim from the beneficiary under the collateral warranty.
- Most collateral warranties include a clause limiting the period during which the beneficiary may make a claim against the warrantor to (often) a period of 12 years from practical completion.
